Labor Unions and Corporate Financial Leverage: The Bargaining Device versus Crowding-out Hypotheses

Woods, Keegan Lee; Tan, Kelvin Jui Keng; Faff, Robert W.

doi:10.2139/ssrn.2497823

Cited by 3 publications

(2 citation statements)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Form 5500 data sets are available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/public-disclosure/ foia/form-5500-datasets. This data set has been used in previous studies (Woods et al 2019). 7.…”

Section: Research Design Data and Sample Selectionmentioning

confidence: 99%

Organized Labor Effects on SG&A Cost Behavior*

Chang

Dai

Lohwasser

et al. 2021

Contemporary Accting Res

View full text Add to dashboard Cite

This study examines how organized labor affects selling, general, and administrative (SG&A) cost behavior. Human capital is emerging as firms' most valuable asset, and we further the understanding of the interaction between employees and SG&A cost behavior. We predict and find that labor cost stickiness is higher for firms facing stronger unions, but the stickiness of SG&A costs is lower. This is consistent with our arguments that in firms with stronger unions, managers' discretionary decision to retain SG&A resources is negatively affected by higher labor adjustment costs that result in the retention of slack labor resources during periods of decreased demand. To assess the robustness of our main findings, we conduct an event analysis of labor union elections and find that SG&A cost stickiness decreases after firms experience new union certification. Cross-sectional tests also show that the effect of labor union strength on SG&A cost stickiness is more pronounced for firms that are in better financial condition, have higher analyst coverage, and have higher net operating assets. We find a similar effect of union strength on discretionary spending when examining R&D costs. Overall, we contribute to the literature by showing that organized labor has a significant effect on cost behavior, which has implications for financial statement users and financial forecasting.

show abstract

Section: Research Design Data and Sample Selectionmentioning

confidence: 99%

Organized Labor Effects on SG&A Cost Behavior*

Chang

Dai

Lohwasser

et al. 2021

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

“…On the one hand, the firm may strategically increase its leverage to improve its bargaining position towards labor unions, since the latter would be less able to extract rents from future cash flows that are already committed to debt holders (see Bronars and Deere, 1991;Dasgupta and Sengupta, 1993;Perotti and Spier, 1993;Matsa, 2010;Myers and Saretto, 2016). On the other hand, the firm may choose to increase its financial flexibility, and hence decrease its leverage, to offset the reduction in its operating flexibility due to unionization (see Gamba and Triantis, 2008;Simintzi et al, 2015;Woods et al, 2019). More generally, unions are expected to favor and promote financial policies that reduce the likelihood of default, inducing managers to choose lower financial leverage so as to reduce employees' exposure to unemployment risk and avoid the loss of firm-specific human capital, wages, and pension benefits (Berk et al, 2010).…”

Section: Introductionmentioning

confidence: 99%